- The IMF recently released the Global Financial Stability Report which details a lot about the state of the global economy.
- Topics covered in the report include: bitcoin as a way to avoid sanctions, the fragmentation of legacy payment and banking infrastructure, and a global call to action for the regulation and control of assets like bitcoin to to prevent further systemic degradation.
- “IMF Says “Strengthening Macroeconomic Policies Are Needed” To Address “Crypto Risks.”
The International Monetary Fund (IMF) recently released the “Global Financial Stability Report” which covered a myriad of topics including: bitcoin and other cryptocurrencies disrupting the payment system, bitcoin being used for evading sanctions, inflation, Russia’s invasion of Ukraine, banking infrastructure, central bank challenges in maintaining credibility, energy security, and many other topics.
The repercussions felt worldwide by the invasion of Ukraine are a matter of obvious concern to the IMF. The report states that due to low market liquidity, counterparty risks, funding constraints, and overexposure of financial institutions strangled throughout the invasion, these conditions led to “cryptocurrency,” or to what many Bitcoiners would call hyperbitcoinization.
The result of the invasion led to an influx of bitcoins and other cryptocurrencies flooding the hands of those who needed them most. Many companies have taken their own initiative to increase the amount of bitcoin donations, such as bitcoin magazine. Ukraine’s reliance on external funding showed the fragility of the current monetary and payment system, as bitcoin was able to offer instant relief. The report states:
“Capital markets could become more fragmented, with possible implications for the role of the US dollar. And the fragmentation of payment systems could be associated with the rise of central bank digital currency blocks.
Not only can payment disruptions occur with bitcoin, but the IMF is also concerned about the amount of central bank digital currencies (CBDCs) being developed. As the system fragments and central banks become even more autonomous, the current banking infrastructure is left in a deluge of exponential technological advancements turning into a tracking game.
This fragmentation worsens as nation states begin to operate outside the framework of the established world order. El Salvador started a first chain reaction in 2021 that led to explosive growth of the bitcoin network as it made bitcoin legal tender, but the international geopolitical scene of 2022 belongs to Russia. One of the main concerns listed in the IMF report is nation states like Russia using protocols like Bitcoin to circumvent economic sanctions:
“Over time, sanctioned countries could also allocate more resources to evade sanctions through mining. Mining energy-intensive blockchains like Bitcoin can allow countries to monetize energy resources, some of which cannot be exported due to sanctions.
The IMF notes that the average monthly income for all bitcoin mining for the last year was equivalent to $1.4 billion. They estimate that Russian miners could have captured up to 11% and that Iranian miners could have captured up to 3%. While economic sanctions may slow the pace of the Russian ruble, bitcoin historically appreciates in extreme ways, allowing network participants to not only operate in the crumbling financial system of global order, but also to derive profit. The report states:
“To ward off crypto risks, strengthening macroeconomic policies is necessary but may not be sufficient given the unique challenges posed by the crypto ecosystem.”
The IMF mentions that central bank digital currencies could stall some of the growth bitcoin and other cryptocurrencies are experiencing with the emergence of central bank digital currencies. This view is based on the assumption that CBDCs will function as a superior monetary network, thereby suppressing some of the demand for other currencies. The report then calls for global cooperation and specific actions by lawmakers to prevent further fragmentation of the global payments infrastructure.
The main takeaway from this report should be that Bitcoin has fragmented the global order with a superior payment network, and the old guard is nervous.
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IMF Releases Bitcoin Global Financial Stability Report
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